$17.8b a year: The cost of the Turnbull government's personal tax cuts

High income earners will be the biggest beneficiaries of the Turnbull government's tax cuts in a major reshaping of Australia's bracket system that will eventually cost $17.8 billion a year.

Australian National University modelling for Fairfax Media shows the Turnbull government's tax cuts - framed in Tuesday's budget as being targeted at low and middle income earners - will provide the most benefit to the highest earning Australians once they are fully implemented by 2027.

These higher income employees - those who earn between $100,000 and $200,00 a year - have been described by former treasurer Peter Costello as "the forgotten people".

By 2027, a couple with two children earning more than $130,000 a year will be banking up to $8000 in extra cash, the ANU's PolicyMod microsimulation reveals.

Advertisement

Workers in the highest quintile will see a 2.2 per cent rise in their incomes, compared to a 1.1 per cent rise for those in the middle quintile and a 0.2 per cent rise in the lowest quintile.

The assumptions underpinning the forecasts should be treated with caution and are based on 10-year forecasts of wage movements and the make-up of quintiles.

"I think what it shows you quite clearly is most of the benefits [from the tax cuts] go to high-income families in the later years," said ANU professor Ben Phillips.

Treasurer Scott Morrison and Prime Minister Malcolm Turnbull.

Photo: Alex Ellinghausen

"Largely because it is high income families who pay the tax, it is very much skewed towards the high end."

The analysis goes beyond the seven-year figures provided in Tuesday's budget, which Mr Morrison pointed to again in his post-budget speech on Wednesday when asked if the changes were fair.

Mr Morrison said workers on $160,000 would see a proportional reduction of 2.4 per cent, while those on $50,000 would see a 6.3 per cent reduction, but the figures only go up to 2024 when the largest reform - when the 37 per cent tax rate is eliminated.

The budget plans to reduce the rate to 32.5¢ in the dollar for 73 per cent of Australian workers - all those earning between $40,000 and $200,000.

"When the second highest tax bracket is eventually abolished, most Australians earning above $41,000 will never face a higher marginal tax rate through their entire working lives," he said on Wednesday.

"I’m a keen fan of aspiration, that’s why I believe in tax relief, to reward aspirational Australians and to give them that encouragement."

Loading

As part of the package Mr Morrison also announced targeted relief of $530 per year for workers earning between $48,000 and $90,000.

The tax shake-up goes further than the tax rate recommended by former Treasury secretary Ken Henry - who suggested a drop to 35 per cent - and will see Australia fall down the list of top tax rates in the OECD.

Mr Morrison confirmed the total cost of the package would be $140 billion over a decade but has refused to outline a year-by-year breakdown.

Further preliminary modelling for Fairfax Media by KPMG shows the total cost of the cuts will reach $17.8 billion per year in 2016 dollars after 2024.

The figure dwarfs the personal income tax cuts delivered by Mr Costello, which topped out at $9 billion a year in 2010, according to the 2007-08 budget papers.

Only the roughly $20 billion in income tax cuts associated with the introduction of the goods and services tax in 2000 were larger.

KPMG economics partner Brendan Rynne said the tax plan is likely to reduce the personal income tax take by about 5 per cent.

"The reality is it is quite appropriate policy," he said.

"The fact that there is staggered tax relief for personal income tax that matches our desire to pay down net government debt that has accumulated as a consequence of continual deficits is appropriate."